Lithium Chile - Ignore the Politics, Focus on the Blue Sky - $LITH

Lithium Chile has been a hot topic as of last week, since the Government of Canada ordered Chinese investors to divest from three junior lithium miners under tougher foreign investment rules around the nation’s critical minerals sector.


https://www.bloomberg.com/news/articles/2022-11-02/canada-orders-three-chinese-firms-to-divest-from-country-s-lithium-miners?leadSource=uverify%20wall


The companies mentioned in the order are Lithium Chile, Power Metals, and Ultra Lithium.


This order raises a lot of questions…


First of all, does the Canadian government even have a right to do so? In my opinion, they don’t and here is why.

When these investments were initially made, the government stipulated a variety of criteria that had to be met in order for the investments to be approved. There was no off-take agreement, the company had to retain majority control of the board, and the investments were made under a % of ownership threshold. Now, 10 months later, the government has come back and essentially moved the goalposts, which in my opinion, is being done due to political pressure from the USA, essentially using China as a scapegoat for the larger issues at hand in the country.


If we want Lithium, why not let Chinese investors finance it? As long as there are no off-take agreements for backend supply in place or majority control of the board and ownership, I don’t see the issue.


I also find it very odd that the government is targeting these companies when the assets are not even located in Canada, as well as the relatively small size of these assets. To put it into perspective, Ultra lithium has a market cap of under $10M and is still in the exploration stage. This is all seems to be very politically motivated, nor does it seem fair. Especially since there is a much larger Canadian-based lithium company, Lithium Americas ($LAC), which Chinese firm Ganfeng Lithium made a $174M investment into, that is not even mentioned in the order. That same chinese firm also made an investment into Arena Minerals, which is not mentioned in the order either.


Why is the government targeting these three specific companies and not going after the much larger fish?


https://www.lithiumamericas.com/news/lithium-americas-announces-us174-million-strategic-investment-by-ganfeng-lithium


https://arenaminerals.com/arena-minerals-confirms-ganfeng-lithium-subscribes-for-3-735-million-participation-in-10-million-offering/


In any case, I think there is a silver-lining to all of this for Lithium Chile, in the sense that this whole fiasco is attracting attention to the company on a global scale.


Lithium Chile in particular, owns a development project in Argentina (Arizaro) as well as an expansive portfolio of exploration projects in Chile. So, one option that I am envisioning for them is a spin out of the Chilean exploration assets into a separate vehicle, and re-domiciling the Argentinian development project to another jurisdiction, such as Australia.


If Chengze is forced to divest, given last weeks news for Lithium Chile, I would imagine that there are multiple potential buyers who would step in and take that block — likely at a premium. Since Chengze’s investment at $0.95, a ton of value has been added which is not being reflected in the current share price of $0.70.


The last resource update the company put out showed 1,420,000 tonnes (895k Measured & Indicated + 535k Inferred) of Lithium Carbonate which was a result of drilling at exploration well, Argento-1. This initial resource estimate is from only 29% of the main concession block leaving abundant area for resource expansion. Last week, the company announced more successful results from nearby well, Argento 2. These results should allow the company to add more to that initial resource, as well as to convert some of the 535k inferred resource over to measured & indicated.


Looking at recent deal comps in the lithium space and using a $180/tonne multiple, the Arizaro project alone should be worth around CAD $250M. This does not even include any of the land from Lithium Chile’s exploration portfolio, which is also in high demand and could either be spun out, optioned, or sold for cash.


Will be paying very close attention to this one in the coming weeks. Will be very interesting to see how things play out.


- SmallCapInvestor